Why does financial liberalization result in a DECREASE in regulation? I would think since financial liberalization leads to market integration there would be an increase in regulation. Thoughts? LOS 12.35.b
liberalization means easier flow of capital. if you have more regulations, this would prevent easier flow of capital. Incidentally the statement “financial liberalization results in decrease in regulation” is misleading. I believe financial liberalization results and decrease in regulation are synonmous (just my opinion…not sure what the CFA texts suggest). liberalization does lead to market integration
IMHO, the liberalization is a process, which may take years to see the results – market integration. Some investors are complaining the lack of transparency in the emerging markets. From no-regulation to increased regulation could help to reduce the relevant risks…De-regulation may happen in the later stage of liberalization.
okay i got it… liberalization is allowing capital to flow freely… so in order to do that, governments need to lower barriers for foreign investment (lower regulation). Eventually Financial liberalization leads to Market integration…
and leads to lower risk and thus lower expected returns
from a developing country’s perspective,they typically have more regulations,so when financial liberalization happens,they tend to decrease their regulations. since there are only a few countries could be called developed countries,globally regulations tend to decrease when financial liberalization happens.